Lump Sums, Running Royalties And Real Options

By Douglas Kidder, Vincent O’Brien, John Holzwarth and Johnny Chau

Douglas Kidder

OSKR, LLC.

Vincent O’Brien

OSKR, LLC.

John Holzwarth

OSKR, LLC.

Johnny Chau

OSKR, LLC.

Lump sums or running royalties; at first glance, it seems like a simple and relatively insignificant choice about the method of payment, but the structure of the royalty matters profoundly to both the licensor and the licensee. A running royalty is a form of metered pricing; the more you use, the more you pay. Lump sum is the all-you-can-eat buffet; you pay the same amount no matter how much you consume. There are many examples of metered pricing (video-on-demand, automobile rental, long distance telephone service, day-passes at the health club) and lump-sum pricing (buying the DVD of a movie, personal automobile purchase, tiered long distance telephone service, health club membership).

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